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FASB Plans Changes on Consolidation of Legal Entities

Oct 11th 2017
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The Financial Accounting Standards Board (FASB) recently voted to make changes to Topic 810 of the board’s Accounting Standards Codification by developing new rules that address consolidation of legal entities and how that is determined.

The proposed Accounting Standards Update, Consolidation (Topic 812) and Reorganization, is being issued in response to stakeholders’ concerns that the consolidation guidance in Topic 810 is difficult to understand and navigate.

Thus, the amendments in the proposed Topic 812 would clarify certain aspects of the consolidation guidance.

The proposed amendments include the amendments in the proposed Topic 810, Targeted Improvements to Related Party Guidance for Variable Interest Entities, for illustrative purposes only. The Topic 810 proposal has already been published for public comment.

The proposal includes the following:

  • Topic 810 consolidation guidance would be reorganized into the new Topic 812.
  • Subtopics 812-20, Consolidation – Variable Interest Entities, and 812-30, Consolidation – Voting Interest Entities will be included.
  • Guidance for Consolidation of Entities Controlled by Contract now in Topic 810 would be moved to Topic 958, Not-for-Profit Entities because that guidance applies only to not-for-profit entities.
  • Guidance now in Subtopic 810-30 for research and development arrangements would be superseded. Certain changes would make the guidance easier to understand without intending to change the analyses performed or outcomes currently reached by stakeholders.

Comments are due Dec. 4 and can be sent to one of the three addresses included in the proposed update.

The effective date for the proposed amendments will be made after feedback on the proposal is reviewed.

The FASB has provided transition requirements because past efforts similar to those proposed in the update have resulted in a change in practice in some circumstances.

Entities that have not yet adopted the amendments in Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, would be required to adopt the amendments in this proposed update at the same time that they adopt the amendments in Update 2015-02 and should apply the same transition method chosen for Update 2015-02. Specifically, that means that a reporting entity may apply the amendments in this update using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively.

Entities that already have adopted the amendments in Update 2015-02 would be required to apply the amendments in this proposed update retrospectively to all relevant prior periods beginning with the fiscal year in which the amendments in Update 2015-02 initially were applied.

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